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Food Chains (Recruiting Ecology III)

(February 9, 2007)
So, to keep the analogy in front of you, the Recruiting Industry is like a playing field with Candidates on one end and hiring managers on the other. In North America alone, 50 Million candidates traverse the distance of the field successfully. On one side, you have 8 Million employers. On the other side, there are 150 Million workers. With that level of volume and complexity, there are many, many alternative paths and a huge number of non-redundant supply chains.

Although it's possible (and usually pretty smart) for a candidate to try to navigate into direct contact with the hiring manager, the tactic is generally seen as entrepreneurial and challenging. From the lowest levels of the economy (landscaping and other residential home services) to the highest, jobs are routinely acquired by candidates with the savvy to build their own connections. A bit of moxie, some good sense about where the market is and what it needs and the willingness to risk failure in person are all that's required.

For the bulk of candidates and Hiring Mangers, however, the process includes a series of brokers and middlemen. The tasks range from communicating the availability of a job, communicating one's availability to take a job, verifying and checking the veracity of the facts, tracking and scheduling the details, brokering resources for less than long term relationships, managing strategic chemistry, fixing empty holes quickly, building a flow of jobs or candidates. Hiring managers are pretty likely to take a passive role right up to the moment that the decision really gets moving. It's really a wonderful luxury to have other people in charge of finding the potential workers, reviewing their credentials and scheduling their interviews.

Technology is changing the realities of this approach. (See the new Jobster hiring manager to candidate videos.) There is also a generational dynamic at work. The communications of the under 30 crowd are more likely to include text and IM. These tools imply a direct connection with the hiring manager. Disintermediation, the thing that makes the web go round, is fast at work on the Recruiting playing field. To the extent that the people in the middle are intermediaries, they are in a race against time.

In economics, disintermediation is the removal of intermediaries in a supply chain: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet. One important factor is a drop in the cost of servicing customers directly.

Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less. Buyers can alternatively elect to purchase from wholesalers. Often, a B2C intermediary functions as the bridge between buyer and manufacturer. (Wikipedia)

The first important distinction among the various food chain players (vendors) is whether they are primarily oriented to serve the hiring manager or the candidate. This is, of course, a matter of degree. Since almost of of the money that flows through the playing field comes from Hiring Managers, it is hard to have a really viable candidate centric business. This dynamic, that most money flows from Hiring Managers, really adds deep confusion to the evolution of the industry.

Although candidates are the central value in the Recruiting equation, they do not usually generate direct revenue for the middlemen on the playing field. We routinely hear 3rd party Recruiters wondering why they should ever work for a candidate (They rarely say thank-you.). Recruiting management systems often serve to shield companies from candidates. The flow of funds from Hiring Managers to the playing field causes a distortion in perception that may be outmoded. Various demographic trends are rapidly redefining the value of a candidate.

With that caveat in mind, the second big distinction is whether a given player primarily helps communicate jobs to candidates or helps communicate candidates to those in Hiring positions. At the extremes, the difference here is between contract staffing firms and job boards. While the various media  (40,000 job boards and doubling every three years) that communicate to candidates are a large and growing segment, the staffing industry, which peddles candidates to hiring managers, dwarfs  it by an order of magnitude.

In theory, this sounds confusing and contradictory. The vast majority of Recruiting endeavors are paid for by hiring managers who are essentially buying data (or various levels of refinement in sourcing). A fractional percentage (3% or 4% or the workforce) work for temporary or contract staffing firms. The revenue in these firms is huge. They sell candidate time to employers at significant markups. It's a small corner of the industry with massive financial impact.

We'll let this sit and stew for a day. Next in the cue .... the various subspecies on the playing field.

John Sumser © TwoColorHat. All Rights Reserved.
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